✔️Risks for Lending Users

This section outlines the primary risks associated with Untitled Bank. By using this protocol, you acknowledge that you have read, understood, and accepted all risks outlined in this documentation.

Smart contract risk

Smart contract risk is inherent when using DeFi protocols. While smart contracts—self-executing code running on blockchains—are designed to be secure, they may contain vulnerabilities or bugs.

A flaw in smart contract code could allow attackers to exploit the protocol and steal funds, potentially resulting in losses for suppliers and borrowers. Given this significant risk in DeFi, users should thoroughly evaluate protocol security before participation.

Liquidation

When a borrowed amount exceeds the borrowing limit, the protocol allows liquidation—where a portion of the collateral is exchanged at market price with a liquidation discount. This mechanism incentivizes arbitrageurs to act quickly, reducing both borrower and protocol risk. The close factor (ranging from 0 to 1, typically 25%) determines how much of the borrowed asset can be repaid. Liquidations continue until the borrower's debt returns below their borrowing capacity.

Market risk of the protocol

Borrowing from Untitled Bank's market requires "excess collateralization"—supplying collateral worth more than the borrowed amount. If collateral value falls below the borrowed amount before liquidators can act, borrowers lose the incentive to repay their position.

100% Utilization Risk

When an asset reaches 100% utilization (all supplied tokens are lent out), the pool becomes depleted. This prevents both withdrawals and new borrowing until the utilization rate decreases through loan repayments or new deposits. This risk particularly impacts users with large pool deposits or during periods of high borrowing demand.